Funnel CEO Tyler Christiansen talks with Ryan Smidt, CEO and co-founder of Clay Residential, about building purpose-built rental communities—and what makes Clay’s approach different.
After years working in institutional real estate at BlackRock, Ryan began focusing on build-to-rent and eventually launched Clay Residential in Houston. He shares lessons from a challenging housing market, explains why Clay designs communities around larger homes and high-touch management, and discusses how individual investors can own homes within professionally managed communities.
In this conversation:
- How Ryan moved from institutional real estate investing into build-to-rent
- Why resident service, empathy, and retention go hand in hand
- The future of renting, and why more people may choose to rent for longer
Listen on Apple Podcasts, Spotify, watch on YouTube, or keep reading below for the full transcript.
Tyler Christiansen, CEO, Funnel: Ryan, thank you so much for this opportunity. I’m really excited about it. The reason I wanted to connect is that Clay Residential may be a new name to many people, but I’ve been excited by the novel approach you’re taking to what is a singular industry: rental housing. You’re approaching it in a way I haven’t heard described before.
As I mentioned in our read-in, you come from a more institutional background. Most of the people who listen to our show work in multifamily and operate apartments. You came from BlackRock’s acquisitions and investments team.
To start, could you talk about the differences between traditional multifamily and what makes Clay Residential unique? I’m curious about your background in looking at rental housing and BTR as an asset class, and what led you and your partner to take this opportunity and pursue such a distinctive approach to rental housing.
Ryan Smidt, CEO and Co-Founder, Clay Residential: During my time at BlackRock, I spent most of my career heavily involved in traditional multifamily acquisitions, development, asset management, and oversight of property management. Toward the end of my time there, I was asked to lead BlackRock’s investigation into the build-to-rent product type.
After spending several years traveling around the country and seeing some great operators and good ideas they were putting into practice to build contiguous communities at scale, it became clear to me that I wanted to do more of this—to execute and create these communities, initially in Houston.
Tyler Christiansen, CEO, Funnel: What year would that have been, when you were traveling around and looking at the BTR movement?
Ryan Smidt, CEO and Co-Founder, Clay Residential: That would have been 2018 and 2019 into early 2020. I left in 2021 to start Clay Residential.
Tyler Christiansen, CEO, Funnel: To jump to the present: those years led into the rent-growth boom. Compared with today’s high-supply, low-rent-growth environment, I think we probably would have all taken the 3% to 4% rent-growth market we had then.
What lessons have you taken from your time as an institutional investor? I ask because asset managers sometimes get a bad rap: they’re on top of the data, but someone else has to fix the problems. You’re now on the side of actually managing these assets.
What have you learned from working in a challenging rental housing environment, whether for institutions or individual owners? I’m curious to hear your thoughts as you compare those two eras of your career.
Ryan Smidt, CEO and Co-Founder, Clay Residential: The biggest lesson that’s been reinforced in this environment—and we’re now three or four years into a really challenging capital-market and space-market environment in rental housing—is to be smart about how you capitalize your projects, especially your development projects, on the front end.
It’s not just about planning for Option A and Option B, but about being smart in creating optionality in the communities you’re building and in the timeframes you have to work with under different capital structures. Clearly, the biggest challenge for many operators in the space right now is that they’ve run out of time with either their debt or their equity capitalization. Bad decisions are often forced when time isn’t on your side.
The other piece, I would say, isn’t necessarily something I brought from my time in the institutional world. It’s a new learning, or a greater appreciation for the value of high-quality property management: truly connecting with residents and trying to have a meaningful, positive impact on their lives in order to, selfishly, position ourselves for better retention.
I think there’s beauty in that. If we start by serving our residents and being empathetic to their needs, and we’re successful on that front, we can achieve things that are good for us as investors and operators.
Tyler Christiansen, CEO, Funnel: That’s a really good point. You talked about the time horizons on capital. As a property management company, there’s this beautiful alignment of incentives: the better care you take of residents, the more likely they are to renew.
As we’ve alluded to, low rent growth is a function of lots of supply and lots of optionality. I’m curious how you’ve thought about the BTR space. There’s SFR and there’s BTR, but what about the demographic of that renter? Given that you came from BlackRock and traditional multifamily, have you found that retention is traditionally higher or stickier because you have families who are more established?
Ryan Smidt, CEO and Co-Founder, Clay Residential: The data does show a much higher retention rate. Our target is 70%, and we’ve been hovering right around that level for the last couple of years. The composition of households in our communities is different from what you find in traditional multifamily.
One thing we’re doing uniquely is focusing on larger-format homes with more bedrooms than most of the industry has leaned into. I’d say most build-to-rent operators average three bedrooms per home, or perhaps a little less.
In our communities, 70% of the homes we’ve built have four bedrooms. We’ve built more five-bedroom homes than three-bedroom homes. That’s different from what our competitors are doing, and that’s intentional. There are plenty of two- and three-bedroom options in our markets.
The households in our communities are made up of mixed families in many different forms, and I’d say that’s a significant differentiator.
Tyler Christiansen, CEO, Funnel: Another question, coming from this unique point of view: the capital itself and the clients who own these properties influence a lot of the decisions made on the management side, right? Could you unpack a little more of what makes Clay Residential unique and how you’ve designed the model around who owns the properties on day one versus throughout management?
Ryan Smidt, CEO and Co-Founder, Clay Residential: On day one, our communities have been owned by us or by an ownership group related to the operating company. We made the decision a couple of years ago to offer our leased homes for sale to individual investors in our first project, called Willow at Sierra Vista. Today, about a third of that community is owned by individual investors like you and me who have an interest in owning rental properties directly.
The management exercise there is far more intense. I suppose the degree of difficulty is much higher for us as a manager because we have to ensure we’re adequately and accurately communicating the facts to each of those owners, as opposed to working with a single ownership group.
Tyler Christiansen, CEO, Funnel: I personally love the model. The idea of making rental housing ownership more accessible—and being able to access institutional-grade management—is very attractive. I assume you’re primarily in the Houston market today.
Ryan Smidt, CEO and Co-Founder, Clay Residential: Exactly.
Tyler Christiansen, CEO, Funnel: I’ve lived in SFR communities—not BTR—but the market was so supply-constrained in Tampa, where I rented a home. I think it was a three-bedroom, and I squeezed my family of seven into it. It was tight. If four or five-bedroom homes had been available, I might have continued renting longer.
The model makes common sense, and I know you’re passionate about it. Do you envision expanding into other markets or building more communities?
Ryan Smidt, CEO and Co-Founder, Clay Residential: The first question we have to answer before moving beyond Houston is whether we can execute effectively in another market. These aren’t easy businesses to build. A high-touch, consistent, reliable, hospitality-focused management style requires great people and strong infrastructure around them.
Expanding to other markets, initially in Texas, is definitely on our radar, but we’ll do it thoughtfully.
Tyler Christiansen, CEO, Funnel: One thing we hear a lot about is how depressed the homebuyer market has been over the last couple of years. Homes aren’t changing hands for many reasons. You mentioned that buyers aren’t necessarily in the healthiest position, and interest rates are high.
Do you have demographic data showing whether sales of your homes to investors follow the broader purchasing trends, or does this model behave differently because the buyer is an investor?
Ryan Smidt, CEO and Co-Founder, Clay Residential: We’re following a similar path. High interest rates stymie both owner-occupant and investor buyers, and they may affect investor buyers even more because the math is so directly impacted by that metric.
I will say that individual investors have been steadier. Transaction volume ebbs and flows based on other factors and underwriting considerations, but there’s a steady push. By comparison, when the owner-occupant market goes quiet, it goes quiet.
Tyler Christiansen, CEO, Funnel: You’re tied to some of the same trends, but this is a model I could see taking off. Looking ahead, many people in rental housing believe that the lack of new development today will become a tailwind in the coming years.
In theory, if interest rates come down—and no one has a crystal ball—you could have a double tailwind: less supply and more demand for rentals, which could help a new owner underwrite at a higher rent, as well as increased purchasing power.
You may have to think through more layers than others because you’re not just selling to institutional buyers. You’re also selling to consumers.
Ryan Smidt, CEO and Co-Founder, Clay Residential: We certainly have to be very much in tune with the forces affecting that investor client who buys an individual home from us. We have to understand what’s impacting them, and we do view the future as bright from that perspective.
To be honest, there has been significant ownership of single-family rentals by individual investors for decades. Our biggest challenge has been getting the word out to the current investor community about what we’re doing and how it’s different.
It’s an opportunity to own a home that was built for a rental business plan, first and foremost. The materials we put into these homes were thoughtfully selected based on the fact that we know there’s going to be higher wear and tear.
You can own a home that can be managed with the benefits of scale. Large-scale owners of BTR communities, primarily institutional investors, are enjoying those benefits now. We want to put a spotlight on what it means to buy a home in a community alongside another 150 homes being operated under that same business plan.
The ability to operate with an on-site management team and to have a branded, smartly marketed community is something you just don’t get when you own a single, scattered home.
Getting the word out is a challenge because people aren’t used to seeing this model. It’s our job to put a spotlight on what it is.
Tyler Christiansen, CEO, Funnel: We’re happy to play a very small role in that. To your point, at the surface level, people may think, “Okay, it’s BTR,” and miss how important the difference is: the ability to get institutional-grade management, but with different ownership opportunities. I think it’s a really unique model.
One last question on this comparison: one of the other tailwinds we see across our rental customer base is that a larger share of people are renting for life.
As a percentage of the American population, when I started in multifamily, I think it was pretty close to 30% of people were renters. I think we’re now north of 35% of households choosing to rent.
Coming from the institutional-investor side and looking at the bigger picture, do you anticipate that this trend will continue nationally? Will we continue to see more renters and, therefore, more people moving from renting apartments to renting homes?
Ryan Smidt, CEO and Co-Founder, Clay Residential: Yes. I think it’s unequivocal that more people are going to be renters by choice, and the numbers will bear that out, for some obvious reasons. In many markets, the cost of renting is more attractive than the cost of ownership.
I think all of us in the business world can grasp the power of optionality. More and more, individuals are applying those benefits to the homeownership-versus-renting decision. They’re seeing the value in saying, “I can make a commitment for a year, and my life might take me to a different part of town or a different part of the country.” Renting makes those moves more attainable.
Homeownership can be difficult and expensive. I’ve lived it as a homeowner, and—
Tyler Christiansen, CEO, Funnel: I’m experiencing it currently.
Ryan Smidt, CEO and Co-Founder, Clay Residential: So I think that part of the equation is also something people are going to embrace more and more.
The definition of succeeding, or of the American dream being tied to homeownership—that nostalgic view has certainly been fading for quite a long time. Another factor adding to this is new product types like build-to-rent coming into the world. Scattered single-family homes have been available to rent forever. But these purpose-built communities, built at scale with amenities and on-site management, are still a new phenomenon from the last 10 years.
I’ll make this bet: the more people who are exposed to that level of great service—if the homes in these communities are being managed as well as the apartment industry generally manages its inventory—that level of service, paired with a great product offering, is going to draw people into being longer-term, or maybe forever, renters.
They can live in a larger-format home and have their own two, three, or four walls, depending on whether they’re in a townhouse, a duplex, or a detached single-family home.
Tyler Christiansen, CEO, Funnel: I couldn’t agree more. You have a lot of tailwinds behind your business, along with opportunities to improve. As you continue delivering value, the word will get out.
Let’s wrap up with a couple of speed-round questions. Our tagline is “renter-centric.” That can mean many things, but you’re in the business of providing homes, and a large part of that is serving residents. What does renter-centric mean to you or to Clay Residential?
Ryan Smidt, CEO and Co-Founder, Clay Residential: I’ve said these words already, but to me it means being reliable and leaning into a hospitality-inspired management style. We need to be empathetic to the fact that our residents’ homes are at the center of their lives, and we need to be there reliably to provide great service. We look for opportunities every day to surpass their expectations.
Tyler Christiansen, CEO, Funnel: I love that. I wrote down “hospitality” and “empathy.” Those are fantastic words and values. What’s a value that you personally—or the business you’re building—refuse to compromise on?
Ryan Smidt, CEO and Co-Founder, Clay Residential: Transparency. In how we manage our business and our communities, if we have good news to share, we’ll put a spotlight on it. But if there are problems, we won’t hide behind barriers. We’ll focus on the problem and try to solve it productively. Transparency is a big mantra within our walls.
